From the Virginia Society of Certified
Public Accountants - Presented by Dean Knepper, CPA, CFP®

UNCLE SAM CAN MAKE SOME BIRTHDAYS MORE OR LESS TAXING

(December 21, 2004) — As you go through life, your birthday may seem
less important. But for financial planning, tax, or retirement reasons, your
birthday may be significant. Here’s a list from the Virginia Society
of CPAs to alert you to those birthdays that change your tax treatment and
give you cause to celebrate.

Day one

Shortly after your child is born, he or she will need a Social Security number
in order to be claimed as a dependent on your income tax return. A Social
Security number is also required to open a bank account or buy savings
bonds for a child.

Age 14

When your child reaches age 14, the kiddy tax disappears. Under the kiddy tax,
net unearned income exceeding a specific threshold ($1,600 for 2005) that
is received by a child under age 14 is taxed at the parents’ highest
marginal tax rate. At age 14 and older, income tax is paid at the child's
tax rate, regardless of its source or the amount.

Age 17

If your child turns age 17 during 2005, you can no longer claim the child tax
credit ($1,000 for tax year 2005 in accordance with the Working Families
Tax Relief Act of 2004). This is also the last year for contributions to
a child’s Coverdell education savings account, unless the beneficiary
qualifies as a “special needs beneficiary.”

Age 18 or 21

Depending on the state in which you live, age 18 or 21 is the age of majority,
which means your child can do whatever he or she wants with any money you
have put into a custodial account in his or her name.

Age 30

All funds in a Coverdell education savings account must be distributed to the
account’s beneficiary 30 days after his or her 30th birthday. The balance
of any unused funds in the account can be rolled over to a Coverdell for
another qualified family member under the age of 30. This age limit does
not apply to beneficiaries with special needs.

Age 50

Age 50 is the first year you’re eligible to take advantage of the “catch-up” retirement
provisions. Catch-up amounts vary according to the type of retirement plan.
For 2005, anyone age 50 or older can contribute an extra $500 to an IRA. The
catch-up amount for qualified retirement plans, such as a 401(k) plans, is
$4,000.

Age 55

If you leave your job at any time during or after the calendar year in which
you turn 55, withdrawals from your 401(k) or other qualified retirement
plan are not subject to the 10 percent early distribution penalty. Distributions
are subject to regular income tax.

Age 59½

After reaching age 59½, you may be able to make withdrawals from an
IRA or qualified retirement plan without incurring the 10 percent early distribution
penalty. Ordinary income taxes may apply.

Age 60

Sixty is the age at which a surviving spouse becomes eligible for Social Security
benefits based on the deceased spouse’s work record. If you elect to
receive benefits at age 60, you will receive less than the full benefit your
spouse would have received upon reaching full retirement age.

Age 62

You can start collecting Social Security at age 62, though your benefits
will be reduced by 20 percent or more. At age 62, you also become eligible
for
a reverse mortgage, a special type of loan that lets older homeowners convert
the equity in their home into cash to help meet financial needs.

Age 65 to 67

The age when you begin to collect full Social Security benefits gradually is
being shifted from 65 to 67. You’re eligible for Medicare beginning
in the month you turn 65.

Age 70

If you postponed collecting Social Security benefits beyond your normal retirement
age in order to maximize your payments, don’t delay any longer. Your
benefit amount stops increasing after you reach age 70.

Age 70½

If you are a participant in a company retirement plan or a Keogh plan and
you are not more than a 5 percent owner, the required beginning date for distributions
is generally the later of April 1 following the year you reach age 70½ or
April 1 following the year you retire. If you own a business interest of
more than 5 percent, your beginning distribution date is April 1 of the year
following the year you reach age 70½ even if you are still working.

Regardless of whether or not you are still working, if you reached age 70½ last
year, you must begin to take minimum required distributions from your traditional
IRA. Only money in a Roth IRA can continue to avoid taxation by April 1st of
the year following the year you reach age 70½. Owners of a Roth IRA
are not subject to minimum distribution requirements, but beneficiaries of
a Roth IRA are.

If this seems like a lot to remember, keep in mind that a CPA [and CERTIFIED
FINANCIAL PLANNER™ professional] can help you
address your tax and financial needs, whatever your age.

The Virginia Society of CPAs is the leading professional association
dedicated to enhancing the success of all CPAs and their profession by communicating
information and vision, promoting professionalism, and advocating members’
interests. Founded in 1909, the Society has nearly 8,000 members who work
in public accounting, industry, government and education. This Money Management
column and other financial news articles can be found in the Press Room on
the VSCPA Web site at www.vscpa.com.